An offset account is a regular everyday savings account that sits alongside a home loan. It has all the usual features like ATM access, direct debits, direct deposit of your pay, Bpay etc. However, it has one special feature with the potential to save you thousands of dollars in interest off your home loan.
Any money sitting in the account is 100% offset against your home loan for interest calculation purposes. For example, let’s assume you owe $515,000 on your home loan but you have $15,000 in your offset account. For interest calculations, the bank pretends that the $15,000 is sitting in your home loan. It’s not but if it was, the balance would be $500,000 so the bank only charges you interest on $500,000. Therefore on a home loan with a linked 100% offset account, interest is calculated daily on the net balance between your home loan and the offset account. Funds in the offset account are yours to spend however you wish but whatever is sitting in the account is saving you interest on the home loan. This means you are paying more off the principal which means you will pay the loan off quicker.
To maximise the benefits of an offset account, savvy borrowers might choose to use the interest free days on their credit card to pay for their normal living expenses and then on the last day of the interest free period, repay the card in full. The benefit of this is that it maximises the period of time your savings remain in the offset account thereby maximising the interest savings on your home loan.
Please contact us with any questions you may have. We’re here to help.